A Good lesson about Human Psychology

[moore_capital54]

I was reading an old annual report today from 1998, and ran into this paragraph:

 

 

YEAR 2000 STATUS

 

Most computer systems in use today use a 2-digit field to handle years.  This practice was devised in the early 1950s in order to save on the costs associated with data storage, and over time it became an implied standard.  Now this simply means systems will interpret "00" year fields as 1900, not 2000, the result being inaccurate calculations, incorrect logic or total system failures when dealing with dates beyond December 31, 1999.

 

A recently published Statistics Canada survey indicates that companies have been slow to address the issue, and, if it is not dealt with, this will have drastic effects on the Canadian economy.  There is a common misconception that the Year 2000 problem only affects large companies with legacy systems.  This is untrue.  All hardware and software that have not been modified to deal with the Year 2000 correctly will be affected.

 

The Company's board of directors have contracted the responsibility of dealing with Year 2000 issues to its corporate secretarial service, Fastcorp Management Ltd. regarding accounting, administration and statutory filing matters. Fastcorp Management Ltd. has invested heavily in up-to-date, state-of-the-art computer hardware and software.

 

Year 2000 transactions were simulated using the systems of Fastcorp Management Ltd. and under direct supervision of the Company's management.  The systems demonstrated that they were fully capable of properly dealing with transactions beyond December 31, 1999.

 

This to me, is a perfect example of how stupid human beings can be when they let fear take hold. I remember those days and those elements are reminiscent to some of what is driving the fear trade today. It's amazing to think how human beings actually thought that come year 2000 we could experience significant economic shock due to the placement of two digits, and how the fear reached a stage where a public company would have to include it as part of it's corporate governance procedures.

 

This also reminds me of the "Great horse manure crisis of 1894"

 

http://www.thefreemanonline.org/columns/our-economic-past-the-great-horse-manure-crisis-of-1894/

 

 

My advice to current value investors that are frustrated with this environment (me being one of them) Stay Focused! and don't stop looking for bargains! Logic will prevail, this is an incredible time to buying equities.

 

[Parsad]

Very good excerpt Moore!  Hindsight always brings much more clarity to the goings-on of the present.  Cheers!

[augustabound]

I used to work for HBC and each building had a team of at least 2 people and in some of the larger ones I believe had 4 that spent new years eve 2000 in the stores/buildings with a contingency plan for "the end of the world". 

In hindsight, if the world ended, nobody gives a shat about a retailers computer systems.  ::)

[Myth465]

Very good excerpt Moore!  Hindsight always brings much more clarity to the goings-on of the present.  Cheers!

 

Very good post, thanks for the reminder.

 

This too shall pass...

[Guest misterstockwell]

My main veterinary invoicing program failed on Y2K--it was a good time to retire permanently. So, there were some who had issues with the bug.

 

Just like today--some may find it a great time to buy stocks, and some may find it a poor time to buy stocks, with a fantastic opportunity yet to come.

[enoch01]

Thanks for the article!  Some things are crazy cheap these days...

[Kraven]

In fairness, while I think hindsight shows that it was a bit ridiculous and overblown, in the late 1990s it WAS a real risk.  It was an unknown.  You will find that that risk factor, or something like it, was in virtually every prospectus or offering document after about 1998.  I am not sure that it really tells us anything to be honest.  Some risks occur, some don't.  There were plenty of risk factors in the mid 2000s that described how mortgage data isn't perfect and there are no guarantees that the future will be like the past.  If the financial crisis hadn't occurred, that would have been crazy too.  Perhaps the better lesson is simply whether or not risks occur "this too shall pass".

[FFHWatcher]

Perhaps the lesson is that there are always risks and if given enough time and if enough effort and brain power is put into solving them, most risks to our systems (computer, financial, economic, social, political, etc.) can be overcome.

[ERICOPOLY]

in the late 1990s it WAS a real risk.

 

The concern led to a lot of testing of software, a lot of code reviews, a lot more testing, and this led to a lot of fixes to bugs that would have caused problems, and that led to a smooth transition period.  The panic and hype provided the motivation to get companies to dedicate dollars to ensure the transition was well prepared for.

 

[biaggio]

you get burned when you become complacent about the risks or you don t recognize the risks

[moore_capital54]

It appears some of you have again demonstrated the human naïveté. The post was not meant to de-risk a potential Y2K blackout but rather demonstrate how something that was so obviously manageable was blown out of proportion due to the perceived risk and to compare it to other events in history. It is a recurring theme in our history that whenever we are facing an event that is rapidly approaching and has a definitive cut-off date, we tend to over-blow its ultimate effects on our future. Think Elections, or even a first date.

 

This is what is happening right now with the global financial markets. An assumption that the Euro will cease to exist or the US debt will never be paid.

 

Obviously, when humans put their minds towards solving issues we end up solving them.

 

“It is not the strongest of the species that survives, nor the most intelligent that survives. It is the one that is the most adaptable to change.”

 

Charles Darwin

[Kraven]

in the late 1990s it WAS a real risk.

 

The concern led to a lot of testing of software, a lot of code reviews, a lot more testing, and this led to a lot of fixes to bugs that would have caused problems, and that led to a smooth transition period.  The panic and hype provided the motivation to get companies to dedicate dollars to ensure the transition was well prepared for.

 

Agreed.  Remember too that the purpose of risk factors is simply to list out possible things that could impact the investment.  It isn't to make a judgment on the liklihood of occurrence.  One of the major concerns of issuers as it relates to disclosure is an adverse event occurring which isn't specifically discussed in the prospectus/offering document.  Of course, there are always "catch-all" risk factors which are essentially "there are any number of things that can occur which could impact your investment, not all of which are set out, and any of which could cause you to lose all your money".  And once someone drafts in a risk factor, usually everyone else copies it in, often verbatim.

[Kraven]

It appears some of you have again demonstrated the human naïveté. The post was not meant to de-risk a potential Y2K blackout but rather demonstrate how something that was so obviously manageable was blown out of proportion due to the perceived risk and to compare it to other events in history. It is a recurring theme in our history that whenever we are facing an event that is rapidly approaching and has a definitive cut-off date, we tend to over-blow its ultimate effects on our future. Think Elections, or even a first date.

 

This is what is happening right now with the global financial markets. An assumption that the Euro will cease to exist or the US debt will never be paid.

 

Obviously, when humans put their minds towards solving issues we end up solving them.

 

“It is not the strongest of the species that survives, nor the most intelligent that survives. It is the one that is the most adaptable to change.”

 

Charles Darwin

 

Sorry if I misunderstood your point.  I thought you were commenting on the silliness of including Y2K as a risk factor to begin with.  Seems as if I missed your point.

 

 

[Baoxiaodao]

In fairness, while I think hindsight shows that it was a bit ridiculous and overblown, in the late 1990s it WAS a real risk.  It was an unknown.  You will find that that risk factor, or something like it, was in virtually every prospectus or offering document after about 1998.  I am not sure that it really tells us anything to be honest.  Some risks occur, some don't.  There were plenty of risk factors in the mid 2000s that described how mortgage data isn't perfect and there are no guarantees that the future will be like the past.  If the financial crisis hadn't occurred, that would have been crazy too.  Perhaps the better lesson is simply whether or not risks occur "this too shall pass".

 

In a parallel world, Y2K might have had caused a lot of problems. WFC in 1992 might rhythm with BAC in 2011, but they are still different situations. The more I learn, less certain I am with the future.

 

I will second Kraven's argument.

[Uccmal]

The one predictable area where humans, expecially men, consistently underestimate the effect on our lives is the birth of our own child(ren).  We seem to enter it with some sort of collective denial, not realizing it is going to change our lives in ways we have never even thought of. 

 

Sort of on topic, sort of off topic. 

 

I get the point though.  When people collectively focus on one outcome it tends to nullify or reduce its impact.  You can see the same thing in action with energy.  Due to a global focus on alternative energy, and worry about fossil fuel supply, and environmental hazards, it is a reasonable assumption that our use of fossil fuels may actually start to drop over the next few years.